There are lots of things to consider if you’re considering a Home Equity Line of Credit but one of the most important might just be the interest rate.

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The interest rate on your line of credit determines how much more you’ll owe on top of the money you’ve borrowed. A lower rate means less to repay in total.

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It’s not the only thing you’ll need to weigh up, but it’s a great starting point if you’re getting serious about borrowing against your home equity.

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This article illustrates the interest rates on HELOCs from six major banks in Canada (in July 2024), as well as explaining more about the process of opening a line of credit and other things to look out for.

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The best HELOC rates currently available In Canada

Looking at some of the main lenders in Canada (mostly the federally regulated banks), we can see an interesting spread of rares available.

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This information was correct at the time of publishing, but can change quickly.

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This is not a list of every lender on the market, nor is the inclusion of any lender a recommendation. You should do your own research and work with independent advisors to help you make any major financial decision.

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What is a Home Equity Line of Credit (HELOC)?

A Home Equity Line of Credit (which we’ll shorten to HELOC in the rest of this article) is a type of loan you can take out using your home as collateral.

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HELOCs are a revolving credit facility (like a credit card or overdraft) – you can take money out of it whenever you like and repay it according to your own schedule. Other loans typically pay you a lump sum and have a set repayment schedule.

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The money you borrow (your line of credit) is secured against your home (your home equity), which means the lender can foreclose your home if you can’t repay the debt.

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We’ve written the ultimate guide to understanding HELOCs, if you want to read more detail.

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Key factors influencing HELOC rates in 2024

If you’re considering a HELOC, one of your top priorities should be securing a good interest rate. The higher your interest rate, the more you’ll have to repay over time.

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Lenders decide their HELOC rates by accounting for lots of different factors. It’s a complicated process and each lender might have its own unique approach to deciding rates.

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There is one key factor that determines every bank’s HELOC rate: their prime rate. This is the bank’s baseline interest rate, which itself is based on the Bank of Canada’s policy interest rate.

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There are several other common factors that influence where rates sit at a given time:

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• General economic conditions, judged on figures including Inflation, GDP, employment rates and consumer spending.
• Signals from the housing market – sales rates, average house prices, areas with high and low demand and overall listings.
• Rates being offered by other lenders.

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Variable vs. fixed HELOC rates

HELOCs typically use a variable interest rate for at least some of the lifetime of the loan. Some lenders do let you fix for a period of time, however.

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A variable rate can change from month to month. As a result, the amount you owe in interest can be more or less each month. Rates go up and down, so you need to be prepared for fluctuations in what you owe and how much your total debt can be.

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A fixed rate is set at a particular percentage for a period of time. This is great for predictability and stability, but if rates were to fall during your fixed period, you’d be paying more than you would on a variable rate.

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Tips for securing the best HELOC rates

When we talk about the ‘best’ rate on the market, that might not be the lowest. It’s possible that the best rate for you could be slightly higher, but with a longer draw or repayment period.

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Ideally, you want to be eligible for every rate on the market. That’s not always possible (much of it is up to the lenders themselves), but there are few things you can do to give yourself the best chance:

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• Maintain a good credit score
• Compare offers and shop around as widely as possible
• Work with your existing lenders to achieve the best deal
• Understand the costs and fees involved – a lower rate with higher setup fees might end up being more expensive.

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Potential drawbacks of a Home Equity Line of Credit

It’s important that we are clear about the risks and drawbacks of HELOCs, as well as explaining their value. We want to give you the full picture.

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Fluctuating interest rates

If your HELOC is set to a variable interest rate, you could suddenly owe hundreds of dollars more from one month to the next.

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You have to have the financial solidity to be able to take that hit, if it comes.

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Risk of foreclosure

Your home acts as the security against your HELOC. That’s great, because it helps you access an amount of money you probably wouldn’t get from a personal loan. The problem is, if you can’t keep up payments, the lender has the right to foreclose your home.

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The stakes are high, in this sense. You need to be sure you can make your repayments without any delays or challenges.

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Overborrowing and debt accumulation

It’s entirely possible to end up having more debt that you can handle. It can happen if enough of your borrowing is at a variable rate or if several debts are due for repayment at the same time.

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Overborrowing and debt accumulation can put a huge pressure on your finances and even end in you defaulting on one or more loans.

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Fees and closing costs

You’ll have to pay closing costs and other administrative fees when arranging your HELOC. These can run to as much as 4 or 5% of the total cost of your loan.

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Many lenders will want you to pay these fees upfront, so you’ll need the cash ready if you want to finalize your HELOC. Some lenders will let you add these fees to your loan balance, but this isn’t a universal policy.

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Market value fluctuations

House prices have been consistently growing for over 20 years, but they can always move in the other direction. If you choose to sell your house in a market slump, you might find that you don’t earn enough from it to fully repay your HELOC (and/or other debts).

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It’s hard to predict or account for these fluctuations, although this is partly accounted for with your HELOC being restricted to 65% of your home’s value at most.

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Early repayment penalties

If you want to close out your HELOC earlier than the repayment period, some lenders might charge you an early repayment penalty.

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Not all lenders have this policy in place and, if they do, you can always negotiate a deal to meet in the middle. You could end up paying up to 5% of your loan value as a penalty, if your lender does penalize prepayments.

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Qualification criteria for a Home Equity Line of Credit

Lenders don’t just give out HELOCs to anybody. They need to be sure you’re able to repay the debt in full and that your home is suitable to secure against your loan.

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To be eligible for a HELOC, you’ll need:

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• Sufficient home equity (at least 20%, in most cases).
• A good credit score (‘good’ is subjective, each lender will have their own standard to meet).
• Proof of income and employment (lenders need to know you’ll have enough money coming in to make repayments).
• A healthy Debt-to-Income (DTI) ratio (lenders look at your existing debts and their repayments against your income, to be confident that you can repay another debt).
• Proof of existing liens and mortgages (the lender want to know you’re legally allowed to use the property as collateral).
• A property in good condition and facing no major risks (your lender will need to know they can get a good sale price from your home, if they foreclose it. If your house is predicted to fall into the ocean in five years, it doesn’t make for great collateral.)

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The best HELOC alternatives in 2024

HELOCs aren’t the only way to get equity out of your home, there are lots of other options that could be a better fit for you. We’ve outlined a few below, but you should talk with your financial advisor to understand all the options available to you.

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Home equity loans

A home equity loan is the same idea as a HELOC (borrowing against the equity you have in your home), but with a different structure.

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A home equity loan pays you a lump sum, followed by a repayment period.

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You might choose this option if you’re sure you need a specific amount of money, as you can start repaying it sooner or with a shorter term.

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Personal loans

Another option is to take out a personal loan, without using your home as collateral.

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The maximum amount you could borrow is likely to be lower than with a HELOC, but if you know exactly how much you need, that might not be a problem.

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Reverse mortgages

With a reverse mortgage, you borrow against your equity in your home – without selling any of it and without having to repay a penny until you leave.

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It’s a great option if you need a cash injection, but don’t have the income to support repaying a loan every month. This is why reverse mortgages are so popular with Canadian seniors, as the loan is only due for repayment when you sell or otherwise vacate your home.

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Learn more about Bloom’s reverse mortgages.

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Cash-out refinancing

A cash-out refinance mortgage is a way of unlocking the extra value your home has gained since you first took out your mortgage.

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Say you have $50,000 left on your current mortgage and your home has increased in value by $50,000. You could do a cash-out refinance for $100,000 – with $50,000 being paid to you in cash, and the other $50,000 replacing your old mortgage.

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HELOCs are useful, but not your only option

Rates on HELOCs vary, but they generally follow a trend. You’re not likely to find a crazily cheap deal being hidden by any lenders. Even with a variable rate, HELOCs are a useful tool for extracting value from your home without having to actually give any equity up.

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But HELOCs aren’t your only option. If you’re not sure you want to go down the route of arranging a Home Equity Line of Credit, one of the alternatives to consider is a reverse mortgage.

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You keep your home (plus all the market value it gains for the lifetime of your loan), unlock your equity and can plan for the later stages of life with financial security.

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Get a free, no-pressure quote by answering just four questions today.

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